If the Scots vote ‘Yes’ to independence next Thursday, anything could happen.
The pound could crash by anything between between 3% and 20%. There will be blazing rows over whether Scotland can keep sterling.
Alex Salmond could make explosive threats to walk away from UK debt. There will be an almighty row over oil revenues. Scotland will have to apply to join the EU.
Nobody knows how it will end.
D.I.V.O.R.C.E
And that will only be the start. David Cameron, the Prime Minister who lost the Union, will be under pressure to resign. The general election slated for next May will be thrown into disarray. It could even be postponed.
Many companies will have serious thinking to do.
Standard Life has already said it will pull its pensions and investments out of Scotland. Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) and Royal Bank of Scotland Group (LSE: RBS) (NYSE: RBS.US), both headquartered in Edinburgh, may even consider shifting to London.
And whether you are for or against separation, you must be ready for it.
Impossible To Call
That doesn’t mean you should sell up now. First, the result is too close to call. If you dump stock and pro-independence sentiment stumbles at the last, you have to buy back into the market at a higher price, and rack up dealing charges along the way.
That’s no way to time the market.
If Scotland says Yes and the FTSE 100 drops 5% or 10% from its 52-week high of 6878, however, that’s your potential buying opportunity.
If they vote No and markets rise, you’ve lost nothing.
A No Blow
Let’s assume Scotland votes Yes, and markets plunge. Where do you invest?
Credit Suisse has just claimed that deposit flight is “highly likely and highly problematic”, given that Scotland’s financial services sector is worth 12 times GDP.
RBS has already warned that its costs will rise, and its credit rating will fall.
Lloyds has seen its share price drop 5% in recent days, RBS is down around 3%.
An instant drop of 10% could easily follow a Yes vote. Maybe more.
Heading South
You would have to be brave to buy Lloyds and RBS on yet more bad news. Both banks are still in deep recovery mode.
They also do a lot of business in Scotland, and could be hit if the country slips into recession. Re-domiciling in England will spark a patriotic backlash north of the newly fortified border.
It will take at least 18 months to hammer out all the detail over independence, and work out exactly what protection these banks will have under the new regime.
The uncertainty will drag on and on.
Barclays and HSBC Holdings, which have much less exposure to Scotland, may offer safer opportunities.
Or maybe you could simply buy a FTSE 100 tracker. Today, the index trades at 13.78 times earnings, and yields 3.39%. Those numbers would look even nicer if the index fell 5% or 10%.
Don’t Forget These
Away from the financial sector, several other FTSE 100 stalwarts could also be available at discount prices. Utility Scottish Power, engineering firm Weir Group and power generation group Aggreko are all headquartered in Glasgow. Utility company SSE is based in Perth.
In the longer-term, they could rebound, especially if the new Scottish government cuts corporation tax.
Things Change
Some things won’t change. Lloyds, Standard Life, RBS and others will continue to be listed on the London Stock Exchange. Dividends, if they pay them, will be paid in pounds.
In time, both sides will see the advantages of an amicable split. Independent or not, the UK and Scotland will still be dependent on each other.
If that happens, you’ll be glad you went shopping for shares in the heat of the crisis.
The Scots won’t vote Yes twice. An opportunity like this will only come along once in your lifetime.
